Canada Revenue Agency administrative position
A change in the Canada Revenue Agency’s (CRA’s) administrative position means that, if you sell your principal residence in 2016 or later years, you must report:
the sale (i.e. the date of acquisition, the proceeds of disposition and a description of the property), and
the principal residence designation,
on your income tax return to claim the full principal residence exemption.
This exemption enables a residential property to be sold without triggering tax, if certain conditions are met.
The CRA will modify Schedule 3, “Capital Gains (or Losses),” to handle the new required information. If the property was your principal residence for all years of ownership, the designation can be made on Schedule 3. Otherwise, a separate prescribed form must be completed in addition to the Schedule 3 reporting.
Even though the Income Tax Act has always required a prescribed form to be filed to claim the exemption, the CRA previously had advised taxpayers that no reporting was required on the sale of a home if it was their principal residence for each year of ownership.
The CRA’s revised position applies to actual, as well as deemed, dispositions.
However, it does not affect the reporting requirements for trusts, which did not benefit from the previous CRA administrative relief. As has been the case in the past, trusts that designate a property as a principal residence for at least one year must report the sale (or deemed sale) for income tax purposes.
Failure to report
If you don’t report the sale or the principal residence designation in the year of sale, you can request the CRA to amend your income tax return.
Under proposed changes, the CRA can accept a late principal residence designation in certain cases, but a penalty may apply equal to the lesser of:
$100 for each complete month from the original due date to the date your amendment request was made
However, the CRA indicates that for dispositions occurring in 2016, the late-filing penalty will be assessed only in the most excessive cases.